DAVID DARST: 6 Reasons To Be Bullish, 7 Reasons To Be Bearish

Here's a quick round up of all the reasons to be bullish and
bearish on stocks from the strategists of Morgan Stanley Smith
Barney's
Global Investment Committee, which includes Jeff Applegate,
Charles Reinhart, and David Darst:

Equities Bullish Factors

Forward price/earnings ratios for global, US and emerging
market (EM) equities are historically low. Equities are also
cheap relative to bonds and cash.

The US housing recovery is well-established, broadening and
deepening. This is good for consumer net worth, confidence,
sentiment and spending, and for US economic growth.

Incremental consumer spending in the emerging markets
eclipsed US consumer spending several years ago. What’s more, EM
consumer growth is in its infancy relative to developed market
(DM) consumer growth.

Potential GDP growth in most big EM economies is a multiple
of what it is in DM economies, portending an extended period of
positive global GDP growth.

Global inflation is low and price pressures are scarce.
Inflation is thus unlikely to pose a problem in most economies
for an extended period, giving central banks room to ease more if
needed.

By almost any metric, the planet is now more peaceful than at
any time in human history. Remember the old adage: when goods
cross borders, soldiers do not.

Equities Bearish Factors

The American Association of Individual Investors survey shows
41% bulls as compared with 34% bears.

The ongoing deleveraging in the major developed market (DM)
economies will take several years to run its course;
historically, the byproduct of this process has been a long
period of sluggish growth.

Is Europe the next Japan? The continent is at risk of
slipping into a “lost decade” triggered by lack of leadership and
institutional inflexibility at the ECB and elsewhere.

Global growth is largely dependent on EM policymakers, many
of whom are not as seasoned as are DM policymakers. Moreover, big
drivers of global growth like China remain authoritarian
states.
Sovereign debt burdens are too high in several DM countries;
hard political choices are required or currency values are at
risk or, put differently, living standards will fall.

Bloated central bank balance sheets raise the risk of a
global inflation problem down the road if policymakers make a
mistake by monetizing that debt and thus allowing it to work into
inflationary wage growth.